Brands chase orphan consumers

Feature1-PacmanUK high streets are awash with billions of pounds worth of dispossessed revenues after the collapse of Woolworths and the closure of hundreds of stores in the music, food, furnishings and children’s clothes sectors.

Surviving rivals are working out how they can mop up these excess sums and lure shoppers left out in the cold by the loss of their favourite stores.

Any sharp economic downturn creates opportunities to scavenge market share from the victims. But it is not only retail where the vultures are descending. Banks are also vying to pick off 240,000 savers fleeing the £3bn collapse of Icelandic bank Icesave late last year, as well as other displaced savers. Travel companies are also looking to pounce on the sales that were freed by the collapse of XL Leisure last summer.

While consumer spending may be in decline overall for the moment, there are golden opportunities to target all that cash in search of a home.

Striking the right note in marketing campaigns targeting those “orphan” consumers will be vital. Survivors will be able to compare their own smart, caring and wise approaches to the irresponsibility of those who failed.

Woolworths’ collapse is creating a £2.7bn opening for retailers selling homewares, DIY, children’s goods and entertainment products. Rivals are queuing up to cherry pick the best-located high street stores. Iceland last week announced plans to buy 51 outlets. But even before they skim off the cream, rivals will gain from deflected sales.

The biggest winner will be Argos, which stands to pick up over £100m in homewares and DIY sales from the final closure of Woolworths’ 805 stores last week, according to Gmap Consulting. The research company, which builds revenue prediction models for retailers, says 40% of Woolies sales comes from DIY and homewares, 45% from entertainment, toys and clothes and the rest from groceries such as pick ’n’ mix. 

Another beneficiary of Woolworths’ collapse could be WH Smith, which stands to gain 9% of comparable sales in areas such as books, newspapers, confectionery and stationery. Meanwhile, Wilkinsons – a rival variety retailer with 312 stores – could pick up 8% of sales across the board, amounting to £216m. None of the potential beneficiaries was prepared to comment.

For marketers the critical issue is how to attract those displaced Woolies shoppers. Many of them are young mothers without cars who will naturally swarm towards nearby high street rivals. But in certain locations, rivals could target them either through local press ads or direct marketing. “It’s all up for grabs,” says James Wedge, an analyst at Gmap. “Shoppers will head for the stores with the greatest brand awareness. But if others come in and say ‘we are here, come and try us’ they can still grab a share of those deflected sales,” he adds.

According to Retail Knowledge Bank partner  Robert Clark, up to £10bn of retail sales could become available following the latest round of store closures. “The multiples have opened too many stores over the past seven years and the problem of boarded-up shops will take a while to shift,” he says. He predicts retailers will wait for rents to drop before moving into deserted stores.

But opinions are split over how some of the spoils will be divided. Clark thinks the closure of the £300m-turnover MFI kitchens and furniture chain will benefit rivals Moben and Magnet. Others believe the downturn in sales of high ticket items such as kitchens means there will be little orphan cash floating about for such high priced goods. However, for lower-priced goods, some retailers will be rubbing their hands in expectation.

“Mothercare will be pretty pleased at the moment,” says Mike Godliman of Pragma Consulting. “It has less competition with the closures of Adams stores and Woolworths. Gap is another winner while the supermarkets are also going to gain.” Administrators to childrenswear chain Adams announced last week they had closed 111 of its 270 stores.

Meanwhile, the financial collapse last autumn has created huge opportunities for banks. Many have been forced out of business after rivals called in loans and refused to lend them further cash. Those left standing at the end of this capitalist civil war will exercise an unprecedented level of control over the financial system worldwide. As soon as Lehman Brothers fell last September, triggering the global banking crisis, Barclays rushed to pick over its remains. In the UK, Spanish bank Santander has swooped on Alliance & Leicester and the high street branches and savings arm of Bradford & Bingley, before revealing its own problems.

In the UK, Lloyds pounced on the collapsed Halifax hastening its own emergency and forcing a tax payer-funded rescue. But when the dust settles on the crisis, Lloyds Halifax may emerge from state control with a monopolistic grip over UK banking. This is a high-stakes, all or nothing game where the players either die out or achieve matchless supremacy.

For the moment, though, there is little clarity for consumers seeking a safe haven for their money. The collapse of Icelandic bank Icesave in the autumn and the payment of £800m in state compensation to those losing their savings has opened up a market of hundreds of thousands of orphan savers.

Lloyds claims it is benefiting as the UK’s most trusted high street bank. A spokeswoman says: “We have seen a shift in attitudes since the collapse of the Icelandic banks. There has been a move away from people being ‘rate tarts’ and Lloyds has benefited from the flight to quality.”

According to Paul Gordon of financial ad agency Tangible Financial, the winners in the battle for new savers have been HSBC and the Post Office (with a 100% capital guarantee) while ING Direct, with its Dutch state guarantee, has also benefitted. He foresees an upturn in financial services marketing this year as banks and others fight for orphan customers.

“We will see an increase in activity because of media deflation. The ones that are still around and can fight for business will battle it out. They thrive on acquiring and getting more cross-selling but they are going to have to earn trust. We are not going to see a quiet financial sector,” he says.

One man’s poison is another’s meat. With dwindling consumer spending, survivors will battle hard to pick up deflected sales from fallen rivals. The winners of these battles stand to gain unprecedented dominance in their sectors when any recovery arrives.

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